What should buyers expect in a short sale? There are compelling reasons for homeowners and for lenders to embrace short sales as an alternative to foreclosure. But what about the buyer in a short sale arrangement? What are the positives and negatives for them as they play their essential role in the success of short sales?
Of course, there is the obvious answer: They get a lot more house for the money they invest. That alone makes the whole thing a win-win-win situation. The homeowner walks away clear of the debt burden and without a nasty stain on his or her credit history; the lender comes out ahead because the short sale – despite yielding proceeds below the amount of the loan – results in more money than the house would likely sell for after sitting empty for months and clears a bad loan off the books sooner, without the cost of maintenance, repairs, taxes, and other fees in the interim.
The buyer, as the third leg of this tripod, pays less than he or she would have if the house wasn’t in a distressed property situation. That lower price is a gift that keeps on giving; as the economy and housing market recover, the home’s value will rise more quickly relative to other properties.
In return for those benefits, though, buyers in short sales have to exercise a fair amount of patience and temper their expectations both in terms of the pace of the process – it’s going to take 60 to 120 days in just about every case – and the success rate of their initial offers.
Unlike the “normal” sale, in which a sincere buyer makes an offer and then does some back-and-forth negotiation with the seller to reach an agreeable price, in a short sale it isn’t the seller making a decision about the deal. It is the lender.
A buyer might offer $150,000 for a house that has a $175,000 mortgage. The agent then takes that $150,000 offer to the lender, who dispatches an appraiser to the property for an opinion. Depending on the appraiser’s report, the lender will either accept that offer or simply counter the offer , saying perhaps that $155,000 is the absolute minimum.
Unfortunately, several weeks may have elapsed between the $150,000 offer and the lender’s answer, since the lender’s negotiators are overworked, particularly in today’s housing market. The anxious buyer then must decide whether he or she can meet that $155,000 demand or lose the opportunity to buy the house.
The short sale essentially turns the normal process on its head, with an offer followed by a long period of uncertainty, followed by a “counter-offer” that isn’t really very negotiable. That’s why we always emphasize patience, and realistic expectations, for the buyers we deal with.
Because the bank’s “floor” in terms of the minimum sales price for the home often isn’t known until after the first offer is received, that’s why it’s important that the agent handling the sale makes the best and most realistic estimates of the price range before the house goes on the market. The last thing anyone wants is a huge gap between the buyer’s offer and the bank’s minimum price; that will only torpedo the sale and leave a very disappointed potential buyer behind.
However, once the bank has established its minimum price, the agent can advertise the house as an approved short sale, so subsequent potential buyers know exactly what price they must meet to purchase the house. That can be helpful, but the ideal situation is to get the house sold with the first offer, since moving it more quickly benefits everyone concerned.
Because of the process, it is important to buyers to be kept informed along the way. To make an offer and then hear nothing for weeks is aggravating to say the least, so it requires the agent to remain in regular contact, at least weekly, with the buyer. Updates that help the buyer understand that the offer is at least moving through the various steps are very helpful in alleviating anxiety. Particularly if the buyer has bought a home in a straight, traditional sale previously and is perplexed by the short sale process.
When it’s all over, everyone involved in a successful short sale comes out a winner. It’s just that the trip to that rewarding conclusion is a bit longer and more complicated than your typical home sale.